We're in the thick of another earnings season...
Third-quarter earnings reports have been rolling in. And the big names in the market are making headlines in the financial media for their results.
By now, you've probably seen the headlines about a tech titan suffering a massive earnings-per-share ("EPS") miss.
I'm talking about Meta Platforms (META).
The company released its results after the market close on Wednesday. And it reported diluted EPS of $1.05 a share. That's a staggering 83% drop compared with the same period last year. And it's a huge double-digit miss on expectations for the quarter.
Now, I admit I fell for the flashy headlines...
But in the earnings report, Meta said this low EPS figure was due to an extra, one-time income tax charge of nearly $16 billion.
Without this massive tax, Meta that said its net income would have come in at nearly $19 billion instead of the less than $3 billion that it reported for the quarter. And the company noted that its diluted EPS would have been $7.25 instead of $1.05.
That EPS figure would have been a beat instead of a miss.
Meanwhile, Meta increased its quarterly revenue by 26% year over year. The company also expects to spend more than planned on its AI infrastructure.
But in the wake of the earnings report, Meta's stock took a big hit in after-hours trading. And yesterday, the stock plunged 11%. Investors didn't like what they saw in the report.
So far, Meta only has AI chatbots and its Vibes video feed to show for as much as $72 billion in expected capital expenditures this year.
Investors are wondering if Meta will see a big return on those investments...
As you might recall, my colleague Joe Austin recently discussed this fear. As he noted, tech companies need to find "killer" application products that can justify their massive spending sprees.
For Meta, that "killer" application product might not seem as obvious. Let's take a look...
Meta's Path to AI Monetization Isn't What You Might Expect
Last quarter, Meta brought in about $51 billion in revenue. About 98% of that came from one part of its business...
Advertising.
We know AI is good at analyzing data. And Meta is making huge bets that AI will be the next generation of marketers.
Imagine a tool that constantly analyzes how effective an ad is. It collects data on the exact type of folks who click on an ad. And it can then predict if a person will buy – or not buy – a product. It can also adjust where and when an ad runs for best results.
Folks, this kind of thing is poised to become a reality...
Earlier this month, Meta announced its plan to use AI in advertising starting later this year. If you use an AI product from Meta, the company can use those interactions to advertise to you.
In the most recent quarter, Meta's "ad impressions delivered" increased 14% year over year. Out simply, ad impressions count how many times a user saw an ad.
Year over year, the company also charged 10% more for this ad space.
And remember that Meta has an immense user base. The company boasts more than 3.5 billion daily users across its apps.
That's more than 40% of the world's population.
So it's safe to say Meta has incredible reach. And it's likely that the company will continue to see its revenue grow as it rolls out its AI-powered advertising.
To be clear, I'm not recommending running out and buying shares of Meta. In fact, the stock is in "neutral+" territory in the Power Gauge – like it has been since late last month.
Meta will start using AI-powered advertising toward the end of the current quarter. So I'll be waiting for Meta's first-quarter earnings next year to see if this really is the "killer" application.
Good investing,
Ethan Goldman
